Property

Ka-Qing

Under the radar Qingdao faces some investment challenges but isn’t without its advantages

Qingdao is far from the backwater many believe it is or was. Easily among China’s most vivid east coast metropolises, the Shandong city of almost nine million is one of the country’s major ports and a naval base, perched on the Yellow Sea. Qingdao frequently rates higher than Beijing, Shanghai and Guangzhou for liveability on international rankings, and hey … it’s got a brewery and a pretty good annual beer festival (August/ September if you’re interested).

Occupied by the Germans for some time in the early part of the 20th century (hence the beer connection) when the strategic location came into full bloom, Qingdao has been in the midst of a rebirth based on precisely that notion. The city has been growing at a whopping 16 percent per year since 2006 and is also one of Beijing’s beloved special economic zones. Remaining German architecture has given the city something of a tourism industry to go along with major manufacturing, shipping and natural resources.

As has been theorised extensively already this year, 2012 is likely going to be all over the map for property investment, and different sectors are going to be reacting differently to every little bit of news from Europe and the United States. As a manufacturing centre with ideal port access, South Korea and Japan are major investors in the city, and thousands of Korean and Japanese nationals have taken up residence in Qingdao. They’re part of the local population whose disposable income is rising and in turn is driving the retail market, a first half 2011 trend Colliers International expected to continue in the second half. A word of caution: retail supply was expected to peak and lead to increased vacancy rates.

In the office sector over the same period, strong Chinese economic growth resulted in strong demand from both domestic and multinational corporations moving into Qingdao. The outlook for commercial property is fairly strong: vacancy rates will remain steady, and rents and capital values will rise as supply slowly comes online, though no new office supply did so in the last quarter of last year. Given recently approved administrative support that should continue. “Qingdao, as a key component of the Development Plan of Shandong Peninsula Marine Economic Zone, is heading for robust economic development under all of the initiatives, with an annual GDP growth targeted at 11 percent during the period of the Twelfth Five-Year Plan,” Colliers reported. Foreign direct investment increased by over 60 percent in 2011, which should also continue to buoy demand and as institutional investors switch Chinese investment targets from Tier I to Tier II and III cities, Qingdao can expect its profile to continue on an upward trajectory.

Institutionally the city is obviously in a fairly strong position for investment despite a cautious ’12, but where does its residential market sit? Not surprisingly, China’s monetary tightening measures are having an impact: to October ’11 residential sales were down almost 16 percent over the same period in 2010. Transaction volume is down significantly in the secondary market, which boosted leasing market supply and vacancies. Qingdao’s luxury market is in its infancy when compared to more mature markets in Beijing and Shanghai, but there is no shortage of upmarket properties for sale or rent: it comes as no real shock to note the luxury market is concentrated on the waterfront near the CBD. But the luxury sector could very well be expanding. “In five suburb districts with no purchase restriction, many major developers commenced new residential projects there. As a result, the quality of projects as well as supporting infrastructure witnessed great improvement. From January to October, Qingdao’s residential average prices increased 20 percent year-onyear, to reach RMB 7,332.1 (approximately HK$9,000) per square metre,” DTZ’s Property Times report for the Qingdao fourth quarter stated. But as of December, a record 142,000- plus units representing 160 million square feet of space were for sale. If Qingdao is a potential investment spot, now could be the time to buy. DTZ: “Due to increasing selling pressure, major developers began to offer steeper discounts. Looking forward to early 2012, transaction volume is expected to pick up whilst residential prices will see a modest drop.”

Nonetheless investments in the port city look as though alternatives to residential property could be in the cards. Last year’s commercial transaction volume rose over 26 percent, with almost eight million square feet of property changing hands. As DTZ concluded in its report, “As the risk of the residential market increasing due to the tightened policies, commercial property is preferred by investors … As the residential purchase restrictions continue, commercial property will attract more attention from investors in the coming year.”